Reddit stock plunges 30% as Google's AI search threatens traffic and user growth

ETMarkets.com

Reddit shares tumble on AI search concerns.

Reddit stock plunged 29.45% to $91.51, having hit a low of $89.28 earlier in the day.

Reddit said its total daily active unique visitors could decline by a low double digit percentage in the fourth quarter from around 130 million if referral traffic continues to weaken. The warning added to pressure on the stock, which had already fallen about 44% this year through Thursday's close.

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Google's AI search shift puts Reddit traffic at risk

The growing use of AI Overviews and AI Mode in Google Search is changing how users discover information online, potentially reducing the need to visit individual websites for answers.

JPMorgan analysts said Google's expansion of AI powered search features, alongside changes to the ranking of machine translated content, had contributed to the decline in search traffic.

Piper Sandler analysts said a reset in expectations was appropriate, adding that the near term outlook was increasingly clouded.

Despite the traffic concerns, Reddit disclosed that it had extended its cloud services agreements with Amazon Web Services and Google through 2029. Under the agreements, the company has committed to spending $880 million and $580 million, respectively, over three years, according to a regulatory filing cited by Reuters.

Pinterest also falls on weak revenue outlook

Reddit was not alone in facing investor concerns. Pinterest shares declined 7.86% to $18.16 after the company issued a weaker than expected fourth quarter revenue forecast, Reuters reported.

The image sharing platform reported third quarter revenue of $1.17 billion, missing analysts' estimates of $1.21 billion, according to LSEG data. Its fourth quarter revenue guidance of $1.425 billion to $1.475 billion also fell short of Wall Street expectations.

RBC analysts said changes to the European Union's de minimis exemption affected cross border sellers sooner and more severely than expected, leaving Pinterest's European revenue flat.

Pinterest shares had fallen about 23% this year through Thursday. If premarket losses held, Reddit stood to lose $5.7 billion in market value, while Pinterest faced a decline of more than $800 million, according to Reuters.